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BRUSSELS, Belgium-A single insurance market across Europe could affect some 5,000 insurance companies and their almost 400 million potential customers.

But further work by European Union officials must first be carried out to create a truly open market.

Insurance market structures are being altered. Cartel-like insurance markets in places like Germany and Italy are on their way out. Premium tariff structures are disappearing and a more competitive market is emerging which benefits the insurance buyer, according to a report released last month by Swiss Reinsurance Co.'s research unit SIGMA.

However, the European Commission and the European Parliament are still working to create a truly open market for cross-border insurance trading, officials allege.

Indeed, E.U. financial services commissioner Mario Monti said he does not believe there is a "truly open and competitive single insurance market."

"Insurance has been identified as an area where the expected fruits of the single market program have not yet been realized," said Mr. Monti in a speech to the Comite European des Assurances-the Committee of European Insurance Assns.-in Brussels late last month.

Though some barriers have been completely removed-like discriminatory conditions between member states for insurance licenses-other barriers have only been "partially removed" such as restrictions on insurance marketing, he said.

And there are other dichotomies that need to be addressed to create a truly open single market, according to Mr. Monti's speech.

For example, some E.U. member states allow tax deductibility of premiums only on insurance contracts bought from domiciled insurers, said Mr. Monti, meaning that non-domiciled insurers can't compete on a level playing field. Other member states also say that insurance contracts must be written in the official language of the country.

The European Commission and Parliament are working on various projects to eliminate these restrictions to the single insurance market and are calling on insurance buyers and people in the insurance sector to make recommendations, said Mr. Monti.

"The European insurance industry (as well as) consumers has everything to gain from the benefits of a truly open and competitive single insurance market," Mr. Monti said.

Meanwhile, few E.U. member states have implemented a 1991 "recommendation" by the European Commission to introduce legislation to facilitate freedom of services for insurance intermediaries. The commission should now adopt legislation to force member states to impose such freedoms, states the Bureau International des Producteurs d'Assurances & de Reassurances. Brussels-based BIPAR represents 47 national insurance broker associations across the European Union.

Insurance buyers do not have access to a Europeanwide choice of insurance products and services at competitive conditions because some countries don't allow insurance intermediaries to trade across borders. "Professional insurance intermediaries have an important role to breathe life into the dormant single insurance market and can make it work for the greater good of (millions of) consumers," BIPAR states.

Despite these limitations, however, existing E.U. legislation has begun the ball rolling on deregulation and liberalization of the non-life insurance industry, according to the SIGMA report.

The path to the single insurance market began back in 1957 with the signing of the Treaty of Rome setting out the criteria for the European Economic Community which is now known as the European Union. The treaty called for "freedom of establishment, freedom of services and freedom of capital movement."

E.U. legislation for the freedom of establishment-i.e., the right to establish subsidiaries, branch offices or agencies in every other member state-occurred in 1964 for reinsurance, and in the 1970s for non-life insurance.

E.U. legislation for freedom of services-the right to do business across borders without establishing a branch office-came into effect for reinsurance in 1964 and non-life insurance in 1988.

However, there were shortcomings in the first two generations of directives on non-life insurance which were addressed in the third generation of directives to allow the insurer's host country insurance commissioner to supervise and approve a single insurance license for all of the European Union. These became effective in July 1994 (BI, June 20, 1994).

The third generation of directives "represents a breakthrough," says SIGMA's report on "Deregulation and liberalization of market access: the European insurance industry on the threshold of a new era in competition."

"They have established a more liberal market access regime than in the United States, where there is neither freedom of services nor of establishment between the individual federal states," the report says.

But this is no cause for euphoria, according to the authors of the report. "As long as there are still serious fiscal and legal differences, there can be no talk of a fully fledged single market being already a reality."

Nevertheless, as the single insurance market gains strength, there will be major alterations to insurance market structures, the report states.

For example, there will be more foreign suppliers as obstacles to the formation of new insurance companies are dismantled.

There will be more rivalry and competition, especially in markets like Germany and Italy where premium tariffs have been in force and are now crumbling.

"Deregulation and liberalization of market access will increase the pressure to be more competitive, cut costs and rationalize," SIGMA's report states. "This will enhance the overall efficiency and productivity of the insurance industry-to the benefit of the insurance customer."

Insurance buyers must beware, however, according to the report. For with deregulation and liberalization also may come insurance insolvencies. There have been virtually no insurance company insolvencies across Europe in the last 10-15 years other than in the United Kingdom which has always been deregulated.

"We believe that the consumer will benefit from lower insurance prices in the long term," said the authors of the SIGMA report. Deregulation also "will lead to a greater range of innovative and customer-oriented insurance products."

However, "the consumer will have to face a rather less attractive development: the danger that insurance companies will become insolvent and will not be able to pay as promised."

Underwriters already are taking advantage of the existing directives to try and sell cross-border insurance and reinsurance products for the industrial market, added Dirk Lohmann, a member of the board of Hannover Re Group of Hannover, Germany.

Hannover Re, for example, has a U.K.-domiciled company that writes policies throughout the European Union, he said. And a client of Mr. Lohmann's plans to set up a company in one member state to write business throughout the European Union. But the move to a single insurance market is slow, Mr. Lohmann acknowledged.

Industrial accounts have always had access to various markets around Europe, but a single insurance market for all types of risks "does not exist and won't exist for years," said Jacques Blondeau, chairman of SCOR S.A. in Paris.

There are too many different cultures and languages and attitudes to bring about a single insurance market, he said.

What could change the situation and allow one policy to be sold across borders is the introduction of a single E.U. currency, predicted Mr. Blondeau. The E.U. council of ministers is working on the production of a single currency, to be called the "Euro," for the next millennium.